A California federal judge on Monday scrapped a putative securities class action accusing renewable energy company Amyris Inc. of knowingly making false and misleading statements over the production of a chemical used in transportation fuels, finding the allegations lacked particularity.
Granting defendants' motion to dismiss with leave to amend, U.S. District Judge William H. Orrick ruled that Amyris and President/CEO John G. Melo didn't know at the time they issued a press release and held earnings calls that production levels of its chemical product Biofene wouldn't meet expectations.
Plaintiffs David Browning and Steven Tsao, who seek to represent investors who bought Amyris stock between Apr. 29, 2011, and Feb. 8, 2012, allege that Amyris and Melo supported unrealistic projections because they knew they would need to set goals at commercially feasible levels in order to complete an initial public offering.
But Judge Orrick decided that the anticipatory statements were accompanied by meaningful cautionary warnings, while the company's securities filings warned that Amyris might not meet certain projections it made.
“[The securities filings statements explain] the exact problems the plaintiffs allege that Amyris experienced but the defendants hid,” the order said. “Failed expectations are consistent with having the expectations in the first place without knowing that they would fail.”
The putative securities class action, filed in May, is related to an August derivative suit alleging that executives misrepresented the health of Biofene production in order to artificially inflate stock prices and collectively shed $21 million in common stock before prices plummeted from a high of $33.37 per share on Jan. 31, 2011. Proceedings in that suit were deferred in January pending a potential dismissal of the securities action or an answer by the defendants.
Biofene, formed by fermenting sugar cane syrup, needed to be produced in large amounts at a competitive price in order to turn a profit, the suits said. Amyris repeatedly assured shareholders that it was on track for ramping up its production, projecting during the first quarter of 2011 that its five facilities would produce 200 million liters and net annual sales exceeding $1 billion by 2013, according to court papers.
But after the company later revealed that it wasn't meeting expectations and was forced to scale back production, Amyris stock allegedly plunged to $1.59 in May 2012.
The putative securities class action alleged that a confidential witness who was a senior scientist at Amyris accused the company of either ignoring its scientists’ realistic recommendations over yield projections or cherry-picking the best available data from tests. Amyris admitted in July in a video it produced that its earlier projections were unattainable, according to court documents.
Judge Orrick decided Monday that the defendants had admitted that Amyris might have problems scaling up its production, achieving desired technical results and meeting production targets.
“Even if Amyris missed its production targets, the plaintiffs do not allege that Amyris did not actually create a process that can produce Biofene on an industrial scale,” his order said.
Moreover, any financial projections are protected by the Private Securities Litigation Reform Act's safe harbor provision, according to Judge Orrick.
He further ruled that plaintiffs’ allegations don't raise a cogent or compelling inference of scienter against the defendants.
“The most obvious explanation [is] that they were simply mistaken in their projections,” he said.
Michael D. Celio of Keker & Van Nest LLP, which represents Amyris and Melo, told Law360 on Tuesday that they are pleased with the court's decision.
"[We] are grateful for Judge Orrick's thoughtful consideration of the issues we raised in our papers,” he said.
Attorneys for the Browning and the proposed class didn't respond Tuesday to requests for comment.
The judge gave plaintiffs up to 30 days to file an amended version of their complaint.
Browning and the proposed class are represented by David E. Azar, Barry A. Weprin and Johnathan P. Seredynski of Milberg LLP and Evan J. Smith, Jason L. Brodsky and Marc L. Ackerman of Brodsky & Smith LLC.
Amyris and Melo are represented by Michael D. Celio and Laurie Carr Mims of Keker & Van Nest LLP.
The case is David Browning et al. v. Amyris Inc. et al., case number 3:13-cv-02209, in the U.S. District Court for the Northern District of California.